There are some pretty cheeky claims in today’s Pre-Budget Report. One is that “Cyclically-adjusted borrowing is lower than at Budget across the medium-term forecast.” (page 171). That makes it sound like it’s all under got a bit better since the Budget. But in fact the “cyclically adjusted” improvement is entirely because of a redefinition of the cycle - not because of any actual reduction in the deficit. For example, the PBR forecasts the deficit for 2013/4 as 5.5 percent of GDP - exactly the same as that in the 2009 Budget.
Another claim is that “The annual pace of consolidation set out in this Pre-Budget report is faster than the pace of deficit reduction forecast by the IMF for all other G7 economies” (page 33). What the PBR doesn’t mention here is that the UK will have to reduce borrowing more in the future precisely because it is currently increasing it far more than these other countries. In fact the UK is running up more additional national debt than all but one of the G20 economies, adding twice as much debt as the G20 average between 2007 and 2014. The bigger the debt, the more there is to pay off. That’s nothing to boast about.
There are some other things in the PBR that the Government seems less keen to boast about:
It doesn’t trumpet the fact that 2009 will be the worst year for the UK economy since comparable records began in 1948. A 4.75 percent contraction is worse, even, than the worst year of the Great Depression.
It doesn’t flag up the fact that the Government now plans to run up even more debt than it predicted in the last Budget. The national debt in 2013/14 is now predicted to be 77.1percent GDP, rather than 76.2percent. Nor does it highlight the fact that between 2007 and 2014, we will have added more than a trillion pounds to the national debt.
The Government wants to present this as a “fairness” budget. But it plans to hike Employers National Insurance, a tax on jobs, at a time when unemployment will still be high. Recent Treasury research suggests that there is some 1.7m of suppressed unemployment, with workers keeping their jobs only because they were willing to accept reductions in hours, pay freezes, or pay cuts. Imposing extra tax on employment could well tip matters over the edge for a significant number of these people, accelerating the rise in unemployment. There’s nothing “fair” about that.
Neil O'Brien is director of Policy Exchange